Why Latin Americans are skeptical of U.S. intentions

ASK THIS | March 09, 2007

President Bush is touring Latin America delivering a message that the United States is dedicated to fighting poverty in the region. But one reason Latin Americans don’t believe it is that U.S.-backed policy reforms have resulted in a quarter century of poor economic growth.

Q. What is the relationship between the policy reforms of the last 25 years (sometimes called the "Washington Consensus" here or "neoliberalism" in Latin America) and the unprecedented economic growth failure in Latin America?

Q. Could the election of left or populist governments in much of the region be a result of this economic growth failure (rather than just the ongoing problems of poverty or inequality?)

From 1960-1980, real per capita GDP in Latin America grew by 82 percent. From 1980-2000 it only grew by 9 percent, and from 2000-2005 it only grew by 4 percent. Overall, the last 25 years constitute the worst long-term growth performance in the region for more than 100 years.

It is difficult to exaggerate the importance of this type of economic failure. A generation and a half of Latin Americans have lost out on any chance to significantly improve their living standards. If Brazil or Mexico had simply continued to grow at their pre-1980 rate, for example, they would have per capita incomes at European levels today.

In the past three years growth has picked up somewhat, but this has not been enough to blunt the desire of most Latin Americans for change. While the "Washington Consensus" reforms were not all wrong nor completely unsuccessful – for example, hyperinflation or even very high inflation is now a thing of the past – it is clear that something terrible did go wrong. Because that has not been acknowledged by the political classes in these countries, the electorate has gone over their heads and voted for change: in Argentina, Venezuela, Brazil, Ecuador, Uruguay, Bolivia, and Nicaragua. In the last year or so, populist candidates also came close to winning in Costa Rica, Mexico, and Peru.

In each of these elections the challenger ran against the policy reforms of the last 25 years.

Q. What influence does Washington have in Latin America now that the IMF's influence (in particular, its ability to determine in many cases whether a country can get credit from most sources) has collapsed?

Q. What role have Venezuela's lending and aid programs played in this process?

The biggest change in the international financial system since the breakdown of the Bretton Woods system in 1973 has been the collapse of International Monetary Fund influence. The IMF was overwhelmingly the major avenue by which the US government influenced economic policy in Latin America. This was not so much because of the money that the Fund itself loans, but because of an informal arrangement that established the IMF as a "gatekeeper" or the head of a creditors' cartel. Governments that did not meet IMF conditions could not get most loans from the much larger World Bank, the Inter-American Development Bank (IADB), the G-7 governments, and sometimes even the private sector.

This arrangement is no longer operative. Just last week, the IADB made one of its largest infrastructure loans ever ($1.2 billion) to Argentina. Over the last five years the Argentine government has not only defied the IMF in its unprecedented settlement with defaulted foreign creditors, but on basic macro-economic policy issues. It has also criticized the Fund harshly and publicly, and finally paid off the IMF in January 2006. Given these circumstances, it is difficult to imagine a country like Argentina getting a loan of this magnitude from the IADB even a few years ago.

More importantly, the collapse of the IMF's creditors' cartel means that the loss of US influence in Latin America is almost certainly irreversible.

In Latin America, the availability of an alternative source of financing – from the government of Venezuela – has also drastically reduced the power of the IMF and other traditional sources of lending. Venezuela has loaned or committed more than $3 billion to Argentina, and just this week the two countries collaborated on a $1.5 billion joint bond issue that was snapped up by investors. Venezuela has also loaned or committed hundreds of millions of dollars to Bolivia, Nicaragua, Ecuador, and other countries. The IMF's loans in Latin America are a small fraction of Venezuela's. And unlike loans from the IMF and World Bank, Venezuela's lending is without policy conditions.

Posted by
Jerome Dobbins - citizen
03/16/2007, 02:34 PM
If it wasn't for Chavez making waves Bush would not have even made a trip. I'd have rather spent that trip money and promised foreign aid on a bigger fence.